Page 42 - AEI Insights Vol. 7 2021

AEI Insights, Vol 7, Issue 1, 2021

high cost of production affects the domestic and regional market prices directly. As a result,
the local high qualified workers is lower; consequently, unemployment is higher.
Also, the infrastructure and transportation systems in Country-A is smaller. In this case,
Country-A consumption is higher under free trade with Country-B in the form of trade
liberalization under the assumption of non-exist imported inflation. Our assumption as to why
the use in Country-A is higher is based on the import dependency and fragile national food
security. Another issue affecting Country-A is the weak legal framework and justice, high
financial speculation, income inequality, political instability, high corruption, high
bureaucracy, and scarcity of information About the country, small amounts of qualified labor
supply, limited physical infrastructure. However, the cost of production in Country-A is higher
from its significant dependency on imports from Country-B always. Country-A is faced with a
high rate of unemployment. This constitutes a substantial obstacle to uplifting the standard of
education in these countries and the reason behind the low labor productivity at the regional
level. The smaller human capital high qualified supply also creates a significant obstacle to
transforming the production sector of any country and hence, the quest to produce new goods
and services with more high add value. In addition to the above shortcomings, Country-A has
scarce physical infrastructure and transportation systems, a high gross population rate, a high
level of poverty, and imbalance wealth distribution. As regard politics, Country-A experiences
an unstable political instability. This is due to fragile democracies with a flexible legal
framework and a lack of government institutions in Country-A. The economic elites also have
a minimal interest to integrate within a single and sustainable national economic development
model (see Figure 1).

Country-B
Country-B has a better scenario compared to Country-A. At the same time, Country-A has less
advantage than Country-B. Country-A has a position with more natural resources and less
pollution compared to Country-B with high pollution and vulnerable to get any time a massive
epidemic. The Country-B economy is based on the high technology industries and services. In
this case the production of Country-B shows high value-added, or in other words, the creation
of industrial goods. Country-B has a comparative advantage based on the low production cost
in terms of high productivity and a high number of qualified workers in the labor market.
Therefore, Country-B employment is higher because the Country-B offers products with top
value-added products to Country-A. However, the impact of a massive epidemic on Country-
B can automatically stop to trade with Country-A (exports and imports) and starts to affect
directly on the consumption of Country-A. If both countries stop to purchase, then Country-A
can experience imported inflation effectively, and at the same time, jobs diversion from
Country-A and Country-B. The crux of the problem comes about when, due to the
comparatively higher cost of producing a commodity in Country- B due to higher labor cost
(quarantine effect), Country-B experiences higher domestic inflation, at the same time higher
unemployment simultaneously. Nevertheless, in the case of Country-A, the opposite situation
is right to exist the possibility of closed trade with Country-B originated by a massive epidemic
and open potential to job creation in Country-A (reduction of its unemployment) in the short-
run (see Figure 2). This is, in effect, the situation before the implementation of the NDEAS-
Model.

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